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Thread: For fun I did some quick simulations of optimal top marginal tax policy as it relates to Canada. For those curious about how this was done, it is similar to what is in @michaelgsmart and @kevinmilligan's paper here irpp.org/research-studi… (1/8) 
The data comes from Stats Can's tables on high income tax filers here (used 2014 b/c 2015/2016 is messy): www150.statcan.gc.ca/t1/tbl1/en/tv.… and an easy summary of empirical ETI (elasticity of taxable income) estimates can be found here: cdhowe.org/public-policy-… (2/8)
I have a few thoughts on these numbers. First, the threshold for the top 1% in Canada is very low: $227K. Most people probably wouldn't put themselves in this bin. The top 10% is only $91K. Second, there are not many millionaires in Canada: only 26K people make over $725K. (3/8)
Third, these simulations show that given our best estimates of ETI, the top income earners in Canada are being taxed at a fairly efficient level, in fact maybe even above the efficient level that maximizes government revenue. (4/8)
Fourth, a low ETI is required for a 70% top MTR to be justified. ETI measures the behavioural response to tax changes. A low ETI suggests there is little adjustment (no evasion, avoidance, reduced work etc.) which is as we know not true. Best estimates put this at 0.5-0.62 (5/8)
Fifth, the right side shows the effect on gov revenues if there is an increase in the top MTR from 54%->70%. If just on the top 0.01%, this would lead to a decrease in revenues of $7-9B. Why is this important? (6/8)
The primary reason to increase taxes on the rich is to increase gov revenue to finance programs. An increase to a 70% top MTR would do the opposite. So in effect, this policy would be the government spending billions to spite the rich - less appealing. (7/8
tl;dr Canadian top MTRs are fairly efficient, imposing a top MTR of 70% would likely decrease rather than increase revenue for programs and fail to reduce inequality. The real solution must be to build a fairer economy ex-ante than to simply redistribute ex-post (end)
A final point, this pertains to income taxes. Discussions about wealth taxes which are also ongoing are somewhat more complicated because there are many layers: what to tax? how much? how to measure wealth?
